Posts Tagged "contract management"

How the cloud forces you to plan ahead

With the cloud migration in full effect, I notice that a lot of my customers do not have any process in place for capacity planning and cloud contract management.

Cloud providers make it easy to scale up and down, but their pricing model encourages you to plan ahead. On demand prices are higher than on-premise prices, and to reduce prices, long term reservations are offered. These long-term reservations however are not governed yet. Here lies an important task for the architects within the company.

What are the concerns for cloud contract management?

Long term contracts are cheaper

The first concern is obvious. To reduce cost, we want the longest commitment, and we would like to pay upfront. This results in the lowest price, so it is very tempting to simply select this type of contract.

On demand resources are flexible

A resource, once committed, can not be changed during the run-time of the contract.¬† This means that if you hit a performance problem, or your business grows or shrinks a lot, you can’t adjust the resource anymore. Only with on-demand resources, you can scale fully.

This is mostly an issue with databases and similar static, complex¬†resources, where you just can’t simply add a server to increase capacity. You will need to adjust the resource itself, so flexibility is important.

Cash flow is irregular

When you move to the cloud, you tend to need a lot of resources at once. This means that all long-term contracts will have identical start dates, and financially, all contracts have the same due date. If all contracts have similar payment conditions, you might end up paying your three year contracts for your entire data center all at the same moment. You will need to make sure you have the buffers to back it up, or you need to spread the contracts, otherwise you might go bankrupt.

Change management and road-maps may conflict with existing contracts

You plan to phase-out a database, or to scrap that expensive server, but contract-management just renewed the three-year contract on it? Guess you need to wait before you get the expense cuts. Replace that application server with an application that has a completely different footprint, and requires an other type of server? Now you pay for the new server and the reservation on the old server.

Changes on your inventory must be aligned with contract management, or you’ll end up paying for machines you don’t need.


The examples show that it is important to plan ahead and align with contract management before committing to long-term contracts and before setting an architecture road-map. You need to make sure that the software contracts and hardware contracts align, and that they match the enterprise road-map. Furthermore, operations needs to stay aligned with contract management, to prevent lock-in when scaling or tuning of the environment is required.

A good process for alignment between architecture, operations and contract management is key to a successful long-term adoption of the cloud.



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